Looking for new ways to serve Muslim microfinance clients

“To alleviate poverty in Pakistan, we have to focus on the farmers,” says Farida Tariq, founder and chief executive officer of Wasil Foundation, a microfinance institution. “But many farmers will not opt for interest-based lending because of religious reasons.”

To address this gap, Wasil started offering a Sharia-compliant microfinance package aimed specifically at smallholder farmers.

Wasil Foundation: Islamic Financing to Farmers

Wasil is an example of how microfinance and Islamic finance can be successfully combined.

An estimated 650 million Muslims live on less than $2 a day. Examples like Wasil show that Islamic microfinance can play a key role in bringing the poor into the financial mainstream in a way that doesn’t force them to choose between their religious practices and their wallets.

But despite an impressive increase in the number of financial service providers that offer Sharia-compliant microfinance products in Muslim countries, Islamic microfinance is still limited to a few countries. The range of offerings is narrow as well – most are largely focused on the cost-plus-markup product known as murabaha, which is geared toward asset purchases.

So how can we broaden the range of Islamic microfinance products that serve the needs of poor Muslim clients? In order to help the poor manage their complex financial lives and generate the income they need to rise out of poverty, we need to move beyond murabaha and encourage the development of other Sharia-compliant products and services that assist the poor in building better lives for themselves.

That’s why my organization, the Consultative Group to Assist the Poor (CGAP), partnered with the Islamic Development Bank, Al Baraka Banking Group, and Triple Jump to sponsor the Islamic Microfinance Challenge. The goal of the Challenge was to find new innovative ways to broaden the range of Islamic microfinance products.

The basic idea behind the Challenge is to encourage microfinance providers to broaden their range of Islamic microfinance products and, in doing so, find new ways to serve Muslim microfinance clients.

We received entries from microfinance institutions in 11 countries. Judges selected the Wasil Foundation as the winner for its impact on the lives of its clients, the sustainability of the offering and its potential to scale up in Pakistan and in other predominantly Muslim countries. The judges also chose the Bank of Khartoum from Sudan and Kompanion Invest from Kyrgyzstan as finalists.

Examples like these provide a snapshot of the kind of innovation that is needed to ensure that Islamic microfinance products can meet the financial needs of poor Muslim communities.

Best is Land Reforms TILLER TO BE THE OWNER OF THE YIELD OF 25 ACRES. Nobody should be allowed to till more than 25 acres. Benefits:1. End of Feudal. 2. 75% Nation goes to work. 3. Everybody pays Tax. 4. Social Security payments for all farm Labour will ensure Free Health care for all. 5. EOBI will ensure that every retired person is given pension. 6. Education Cess will ensure quality education. All this will ensure Pakistan as Social Welfare State

The main challenge is the financial literacy. It is not illiteracy among the common people but among the financial experts. Muslims would be more than happy to join the micro finance system but this has not been unfortunately seen as profitable endeavour by many MNC's. Why should only some limited organizations(with necessarily Muslim name)enter into this arena. Others should also join this. The short term and medium term benefits may not be there but in the long term it a good endeavour. Financial inclusion is an important strategy to end poverty. India and Bangladesh has relatively shown success in micro financing. Poor muslims usually fell prey to moneylenders and have to pay hefty interest rates. Even though this know it is against the religious principles but poverty forces them to go ahead. In such a scenario, an micro financing opportunity offered to them would surely be welcomed by them.